Skadden’s 2023 Insights – Five Critical Areas for the Year Ahead

Skadden’s 2023 Insights

The pandemic’s impact may be subsiding, but businesses are encountering new challenges across the globe, including the potential for an economic retrenchment, rising interest rates, shifting regulatory and litigation considerations, and ongoing geopolitical tensions.

Our annual Insights publication is designed to help you prepare for the coming year. Collaborating across offices and practices, we share our observations and experience from the past 12 months, highlight critical issues you may face in 2023 and suggest ways to navigate what lies ahead. 

A Possible Recession

US M&A Levels Remain Healthy, but Due Diligence and Deal Protections Will Become Even More Critical
High corporate cash levels and private equity dry powder, combined with corporations’ strategic needs, should sustain U.S. M&A activity. Uncertainties about markets and regulators will make robust due diligence and negotiation critical.

The Widely Forecast Recession in the UK Will Likely Reshape M&A
The economic slowdown in the U.K. will likely lead to some distressed sales and possibly attractive targets for U.S. buyers. In some cases, potentially contentious deferred and contingent payment terms may have to be used to reach a deal.

Focus of China Cross-Border M&A Turns to Government-Favored Sectors and Away From West
A slowing economy, volatile stock prices, trade tensions and new regulations have slowed cross-border Chinese M&A and prompted buyers to focus on sectors favored by government policy. But financial buyers have dry powder and remain active.

A Playbook for Borrowers Facing Economic and Debt Market Pressures
Years of borrower-friendly debt terms and covenant-lite structures provide companies with options during an economic downturn. But some transactions have sparked litigation, and securities laws must be observed if bond debt is involved.

UK-Listed Issuers Under Financial Stress Gain Latitude in Secondary Capital Raisings
In the face of economic challenges, issuers listed in the U.K. should pay close attention to updated guidance on secondary capital raisings as well as to their disclosure obligations.

HKEX Initiatives Present Opportunities Even in a Down Market
In a bid to make itself more competitive, HKEX has eased the path for dual primary and secondary listings and SPAC listings, and now proposes to admit some early-stage technology companies that have little or no revenue.

Reductions in Force: Legal Do’s and Don’ts
Grappling with the potential risks of an economic downturn, employers should familiarize themselves with the legal and practical considerations involved in implementing a reduction in force.

How Directors Can Manage the UK Supreme Court’s ‘Balancing Exercise’ in Difficult Times
The U.K. Supreme Court recently held that directors may be required to consider creditors’ interests as well as shareholders’ if a company is near insolvency. A few simple principles should guide boards in fulfilling their obligations.

Enforcement Priorities Could Shift in a Downturn
In downturns, enforcement agencies often prioritize high-risk sectors, transparency, consumer protection and individual accountability. ESG issues, geopolitical tensions and the pandemic may also shape upcoming enforcement efforts.

Convertible Notes, Accelerated Share Repurchases and Other Equity-Linked Instruments: Challenges and Opportunities in 2023
Equity-linked instruments have been significantly affected by the changing market environment. Convertible debt issuers, companies looking to repurchase shares and sizable shareholders should consider whether to act now.

New Regulatory Challenges

Disparate US, EU and UK Sanctions Rules Complicate Multinationals' Exits From Russia
As multinationals work to extricate themselves from operations and investments in Russia, they face conflicting U.S., U.K. and EU sanctions regimes, complicating operations in the wind-down phase and the exits themselves.

Why Directors and Executives Need To Pay Attention to Sanctions, Money Laundering and Export Rules
As various laws restricting foreign transactions proliferate to support U.S. foreign policy, they are being aggressively enforced, so it is vital for boards to monitor compliance. Directors can face personal liability if they do not.

This SEC Press Release Is a Compliance Checklist for Corporations
The SEC is stressing higher penalties, requiring independent compliance monitors and including advisers in enforcement actions. Earnings manipulation, 10b5-1 plans and non-GAAP accounting are also coming in for scrutiny.

New Corporate Minimum Tax and Stock Repurchase Tax Will Take Effect in 2023, but Questions Remain
Two tax regimes established by the Inflation Reduction Act — a new corporate alternative minimum tax and an excise tax on stock repurchases — go into effect in 2023. But little guidance is available for companies to gauge their impact.

Tax Enforcement: A Spotlight on Complex Partnership Structures
The IRS is dedicating new resources to ongoing enforcement efforts against complex partnerships. Existing campaigns have focused on partnership transactions, partners’ tax bases and limited partners’ self-employment tax exceptions.

More Intense Merger Reviews

US and EU Regulators Increase Scrutiny of Vertical Mergers
U.S. and European regulators are viewing competitive impacts more broadly than in the past, questioning once uncontroversial vertical deals and challenging any acquisitions they fear may prevent future competition.

Demystifying China’s Merger Review Process
Winning Chinese approval for a merger can seem like an opaque and puzzling process to newcomers, in part because Chinese law requires regulators to consider broad economic and policy considerations, not just the impact on competition.

Litigation Developments

Supreme Court Term May Upend Precedent, Push Back Regulation
In a term marked by contentious social issues, the Supreme Court’s potential willingness to challenge precedent, find common ground in business cases and restrict administrative power could shape future priorities for the business community.

Trends in Forum Selection Provisions, Merger Objection Class Actions and SPACs Continue To Shape Securities Litigation
State courts’ willingness to enforce federal forum provisions governing Securities Act claims and a tactical shift by plaintiffs’ firms toward bringing individual merger objection suits have altered securities class action filing trends.

Rise in Crypto Securities Filings Could Persist
Between class action filings and SEC enforcement actions, the number of cryptocurrency-related securities claims may top the charts in 2023. The question of extraterritoriality and the Howey test will likely remain a central debate.

The Evolving Climates in the US and UK for Environmental Damage Claims
Whether federal law preempts state common law claims for climate change damages may be settled by the U.S. Supreme Court, while climate claims involving subsidiaries of U.K. companies are being tested in English courts.

A Divided Congress Will Have an Active Investigations Agenda Over the Next Two Years
With a divided Congress likely impeding any significant legislative action, both parties may rely heavily on investigations to pursue their political agendas. Big Tech, digital assets and climate change are likely to receive attention from Congress.

Pressure for ESG Policies

ESG Momentum Remains Strong but May Face Headwinds in 2023
New government mandates and pressure from investors and other stakeholders will keep ESG high on corporate agendas in 2023, even amid uncertainties surrounding the economic outlook and potential fallout from legal and political challenges.